Small Pension Pot

benidorm59

My sister has a small pension worth about 3.5k she is 55, she has recently got divorced and so needs all the money she can get at the moment. She phoned up her pension company and they were helpful and said she could draw it as a small pension pot, does anyone know what this means please ? She has a good final salary work pension but cant draw from this untill she is sixty and his happy to leave that there till retirement.

HappyHarry

From next tax year (i.e. Easter Monday, or more likely Tuesday), she can take it all as a lump sum.

25% of the lump sum will be tax free.

The remaining 75% will be taxed as additional income.

She may be taxed emergency tax on the remaining 75%, and have to claim back any overpaid tax. She should be able to do that shortly after receiving her money.

There may be a delay in processing her request, as it is expected that pension providers are going to be dealing with a great number of similar requests from next week.

Delete33

I have a small pension pot £9373 and I have been told that anything under £10000 is classed as a small pension pot so all the pot can be withdrawn and the pension closed. 25% is tax free.

benidorm59

will it be hard for her to claim back the tax, she earns under 20k I think, thanks for the replies

HappyHarry

It should be straightforward, form P53 from HMRC should do it, but it may take a few weeks.

jamesd

Under current rules she can take up to three small pension pots of values up to £10,000 each. 25% of the money will be tax free and the rest will be added to her normal taxable income. The small pot rule goes away from 6 April because it is no longer needed, with the uncrystallised funds pension lump sum (UFPLS) rule replacing it with no limit on how much can be taken.

She should use Reclaim Form P50 if she has no other pension/PAYE income or Reclaim Form P53. Both forms are only applicable when all of the money is taken out of a pension, they can't be used if some is left in it.